Updated: 10 March 2022
Jerome Le Luel is the Global Chief Risk Officer of Funding Circle. He leads a team of c.100 risk professionals including data scientists, risk analysts and credit assessment experts. Jerome joined Funding Circle six years ago, bringing with him more than 25 years of experience in risk management. His previous roles include Global Head of Risk Analytics at Barclays Bank and Global Chief Risk Officer at Barclaycard, where he successfully navigated their global portfolio through the 2008/9 recession.
As we head into spring and the recovery from the pandemic enters yet another phase, there are a number of trends that are having an increasing impact on the economy.
Trading activity has rebounded strongly with UK GDP growing 7.5% last year, with the size of the economy returning to pre-pandemic levels as we reached the end of 20211. England has also become one of the first countries to remove all self-isolation requirements, with the intention to treat covid as we would other common illnesses going forward.
However, businesses still face many evolving challenges. Inflation is at its highest level for 30 years at 5.5%2, energy costs are soaring and supply chain disruption continues to affect trade across the world. As a result it remains a complex economic picture with ongoing uncertainty. Furthermore, the latest developments in Ukraine may add additional stress to the UK economy and to our borrowers.
In this update, we will cover four key points related to returns and the future of our retail investor product:
Small businesses across the UK have shown their agility throughout the pandemic. From the thousands of business owners we speak to, they continue to be positive about their future plans while staying diligent with their finances. We see this in the performance of our loanbook, with ~97% of expected payments being received each month.
The number of businesses missing a repayment for the first time has also remained stable at pre-Covid levels too. After an initial spike during the first national lockdown, this has now been stable for over 18 months.
Since our last update, we have refined our estimates for projected lifetime returns. You can see these below, grouped by cohort of loans according to the date of loan origination.
Overall I’m pleased to say that we expect returns to remain stable or improve from last estimates in September 2021. As time goes by and the loans are repaid, the volatility of this forecast is also reducing, giving us more confidence in these estimates. However, as can be expected through a recession, returns are lower than initially forecast.
|Loan cohort||Projected Returns – Sept 2021||Updated Projected Returns|
|2015||6.6% – 6.7%||6.6% – 6.7%|
|2016||4.7% – 5.1%||4.7% – 5.1%|
|2017||3.3% – 3.8%||3.6% – 4.1%|
|2018||2.0% – 3.0%||3.0% – 4.0%|
|2019||2.1% – 3.1%||3.4% – 4.4%|
|2020||4.5% – 5.5%||4.5% – 5.5%|
After two years of the platform being paused for new investment from retail investors as we navigated and adapted to the Covid pandemic, we have taken the decision to permanently close the retail platform for new investments. This includes buying and selling through the secondary market. We appreciate this will be disappointing for many of you, it’s been a difficult decision to make and we greatly value the contribution and support all investors have given since Funding Circle was founded. You can find more information on this and answers to key questions here.
You will not see any changes to your accounts or repayments as a result of this announcement. Our in-house Investor Support team will continue to support our investors and provide technical support, while our Collections & Recoveries team will continue to manage the loans in your portfolio and protect your returns.
As you can see in the graph below, since we paused retail lending at the start of the pandemic, over 80% of the loan portfolio has been returned to investors. This means, on average, you will have received back around 80% of your account balance as of March 2022. Your portfolio will continue to reduce over time as you receive regular repayments from the businesses you’ve lent to. These available funds can be withdrawn at any time by following a few simple steps.
Where we believe it’s in the best interests of businesses and investors, we may also complete further sales of defaulted loans. If and when these sales take place, you will gain funds back from these loans immediately that would otherwise take much longer to recover.
We hope the announcement on the decision to permanently close the retail platform will give you clarity to plan for the future, and that you’ll take confidence that the outlook for returns remains positive. For the remainder of the loans in your portfolio, we will continue to support you and the businesses you have lent to.
Finally, I’d like to thank you for your support, both during the pandemic and before. Lending by retail investors has made a huge contribution to thousands of small businesses across the UK, helping them gain access to the finance they need to create jobs, grow and drive the economy forward.